Page 280 - Onboarding May 2017

Message

David Paradise
2015 board chairman

cscs/apple supply chain co-op

CSCS exists to create a competitive advantage for its Members. This advantage is not only
Market Advantage obtained through negotiating the lowest sustainable prices possible but also by supporting

Applebee’s in innovation and product development. CSCS’s participation in the Hand Cut Wood
Fire test this year and the subsequent 2016 rollout will lead to over $10 million in recurring savings, several million dollars
in rollout savings, an Imperial broiler with a high return on investment, and a sophisticated inventory strategy to lead us
through the steak transition. The CSCS team, led by CEO Mike Leikam, works tirelessly on our behalf to help bring new ideas
to life in a cost effective and thoughtful manner. But the concept of creating competitive advantage goes even beyond
price and innovation and is the cornerstone for every other Co-op process or activity including inventory management,
logistics, and even support functions such as information technology and accounting.

Volatility once again ruled commodity markets in 2015. This puts added pressure on the Procurement team, led by Chief
Procurement Officer Mark Smith, as they make daily decisions to secure product for our menu needs. Mark and his team
delivered a market basket that increased by 1.9% in 2015, despite rolling over very favorable beef contracts in relation
to the market last year. Mark and his team were also instrumental in successfully managing the Avian Influenza crisis
to avoid any product shortages by maintaining strong relationships with our key suppliers. For those Members fully
participating in the produce program, costs were only up slightly compared to an active market that saw increases closer
to 10%. The team continues to strive for creative approaches to purchasing that will strengthen our competitive position.

The Logistics team, led by Paul Allegri, created savings last year in the Northeast and Mid-Central regions by negotiating
contracts and going out to bid as appropriate. The expanded freight management program returned a combined $2.5
million in savings for the system and is positioned to do more of the same in the future. Strengthening our distributor
partnerships is essential as challenges to labor, capacity, industry mandates, and other input costs will become more
pronounced in the years to come. With approximately $80-$90 million spent on freight each year, this cost component is
too big to ignore. Throughout 2016, Paul’s team will be conducting a bi-annual survey on distributor satisfaction, and your
participation in that survey is key to the Co-op formulating and implementing effective strategies.

The Brand Programs team, led by Chris McNutt, is at center stage in the Co-op’s role of supporting the Brand’s culinary and
marketing endeavors. The team had an outstanding year despite high levels of menu activity, crisis management, and
major initiatives. The Administration team developed and rolled out a new financing program that gives Members an option
to finance approved capital purchases through a distributor surcharge. This year also marked the seventh consecutive
clean financial audit and several technology initiatives that improved efficiency and internal controls. Technology has
become a strategic element to delivering on supply chain programs and achieving a competitive advantage.

Thank you to the other Apple Co-op and CSCS Board Members for devoting their time and talents to providing the right
levels of governance and direction to the CSCS management team, and thank you to all CSCS Members for staying
committed to system excellence through the supply chain. Much of the competitive advantage that exists and will be
created is only possible through teamwork, coordination, and trust.

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